Engagements Part 2

Question 1

What are the 3 types of attestation engagements performed under the SSAE?

Answer 1

E.R.A

1. Examination
2. Review
3. Agreed-upon procedures

Question 2

What is the examination engagement, examples and type of report, assurance and independence requirement?

Answer 2

accountant expresses an opinion about the subject matter or assertion of another party;

examples: examining I/C or information other than historical F/S
type of report: opinion
assurance: positive
independence: required

Question 3

What is the review engagement, examples and type of report, assurance and independence requirement?

Answer 3

accountant expresses a conclusion on the subject matter or assertion of another party;

examples: reviewing management discussion and analysis information
or information other than historical F/S
type of report: conclusion
assurance: negative
independence: required

NOT RELATED TO PROSPECTIVE FINANCIAL INFORMATION

Question 4

What is the agreed-upon procedures engagement, examples and type of report, assurance and independence requirement?

Answer 4

accountant issues a report on findings regarding specific procedures applied to a subject matter;

examples: verifying cash balances in bank statements, checking security balances
type of report: findings
assurance: none
independence: required

Question 5

What 2 engagements provide reasonable assurance?

Answer 5

1. audit
2. examination

Question 6

What engagement provides limited assurance?

Answer 6

Review

Question 7

What 3 engagements provide no assurance?

Answer 7

1. compilation
2. preparation
3. agreed-upon procedures

Question 8

What are two types of prospective financial information?

Answer 8

1. forecasts
2. projections

Question 9

What do forecasts show, what are some examples and what type of use does it have?

Answer 9

Shows where business is expected to go based on expected general conditions and the entity’s expected course of action

2. Example: forecasting future sales based on sales trends
3. general or limited

Question 10

What do projections show, what are some examples and what type of use does it have?

Answer 10

Shows what management believes will occur given specific hypothetical assumptions (ie. “what if” scenarios)

2. Example: projecting what would happen if an entity lost a major customer
3. limited use only (parties who understand the assumptions)

Question 11

when can an accountant compile F/S that omit substantially all disclosures?

Answer 11

1. omission is not intended to mislead
2. omission must be disclosed in compilation report stating F/S may be misleading without disclosures and are not intended for those uninformed about the omitted content

Question 12

What inquiries in writing will a successor auditor requests that a predecessor auditor respond to?

Answer 12

RID-CU
1. Reasons for change
2. Integrity of management
3. Disagreements during audit
4. Communications with management or those charged with governance
5. Understand related party transactions and significant unusual transactions

Question 13

What is an auditors primary objective before accepting an initial audit?

Answer 13

to ensure preconditions for an audit are present by:
1. determining if the financial reporting framework is acceptable
2. obtaining acknowledgement from management that it accepts its responsibilities, including an adequate I/C environment

Question 14

what client, by law, is required to be audited even if sufficient appropriate evidence is unavailable to support an audit opinion due to a client imposed limitation?

Answer 14

employee benefit plan

Question 15

What are the 3 predecessor auditor’s responsibilities before reissuing a prior year audit report?

Answer 15

1. read current year’s F/S
2. compare prior period F/S with current period F/S
3. obtain representation letters from management and successor auditor

Question 16

What are the two types of examinations?

Answer 16

1. assertion based examinations
2. direct examinations

Question 17

what is an assertion based examination?

Answer 17

an examination of an entity’s internal control over financial reporting (ICFR) in which case a practitioner must obtain written assertions from management of the effectiveness of its internal control structure

Question 18

what is a direct examination? Skip

Answer 18

Skip an entity’s internal control over financial reporting (ICFR) is prohibited

Question 19

Before accepting an audit engagement, what are the 4 preconditions auditors must verify?

Answer 19

1. capabilities of the firm: competence to perform audit
2. legal and ethical standards: auditor independence
3. integrity of the client: no scope limitations
4. primary preconditions for an audit: management must accept responsibility for I/C and their F/S

Question 20

A CPA is considered a predecessor auditor if either of the following criteria is met:

Answer 20

1. the auditor that reported on the most recent F/S (year 1) OR
2. was engaged to perform audit on current F/S (year 2) but did not complete it

Question 21

an other-matter paragraph is added to the successor’s report and it should include these 4 things:

Answer 21

1. the F/S of the prior period were audited by another auditor (whose name is not presented)
2. the date of the predecessor’s report
3. the type of report issued by the predecessor
4. if the report was modified, the substantive reasons therefor

Question 22

when do you accept an audit engagement after the fiscal year end?

Answer 22

when alternative audit procedures can remedy any limitations resulting from performing the audit after the close of the year

Question 23

when do you reject an audit engagement after the fiscal year end?

Answer 23

-client has imposed scope limitations
-audit would result in a disclaimer of opinion
-when alternative audit procedures cannot remedy any limitations resulting from performing the audit after the close of the year

Question 24

what are 4 components within audits of both issuers and non issuers?

Answer 24

1. only independent CPA can perform audit
2. opinion expressed on fairness of financial statements
3. risk assessment due to fraud or error required
4. auditor must obtain an understanding of the control design and level of implementation

Question 25

what are the 3 components of issuer audits?

Answer 25

1. audit governed by PCAOB
2. opinion expressed on internal control over financial reporting
3. auditor must test effectiveness of internal control

Question 26

what are the 3 components of non-issuer financial audits?

Answer 26

1. audit governed by GAAS
2. no opinion expressed on internal control
3. auditor determines if testing control is necessary